Webb a bargain at $40 million

Commenting on the recent poaching of Derek Webb from AIM Fund Management Inc. by C.I. Fund Management Inc., Young, president of research house FundMonitor.com, says that impact of hot shot fund managers can be so great to a company that they are a bargain at almost any price.

For example, most fund companies are valued at anywhere from 5% to 10% of assets under management. According to FundMonitor, C.I. is valued at about 8.6% of assets. If Webb were to bring in $1 billion in new money he’d be worth about $84 million in additional market cap to C.I. At AIM, Webb was managing in the neighbourhood of $4 billion of assets, so attracting $1 billion in short order doesn’t seem unreasonable.

Young says that with these economics it is almost impossible for any firm to say no to a hot manager who’s looking to move. Webb reportedly approached C.I. about a possible move. At the same time it’s clear why the firm that’s been dumped considers it worth filing suit against the departing manager and his new firm, as AIM’s Houston parent has done with Webb and C.I.

The value of Webb’s deal at C.I. has not been revealed as yet, although it may come out in court. According to Stockwatch’s insider reports, star manager Gerry Coleman got 150,000 options when he signed with C.I., along with any cash bonuses, and investment managers are typically paid about 20 basis points per year on assets.

While it seems that firms who poach managers are getting a great deal, Young says there’s also plenty of risk. He points to Trimark Financial Corp.’s high-profile signing of Kiki Delaney away from Spectrum United last year. At Spectrum she was managing around $2 billion. However at Trimark, Young says she’s only attracted about $140 million in assets.

For investors there’s plenty of risk to manager turnover, too. Young points out that unintended portfolio turnover at the manager’s new home is one unfortunate consequence of a manager move, triggering taxes and other costs. Similarly, a hot new manager who’s heavily promoted will often attract new assets faster than they can be invested, choking performance. That said, Young remains wildly enthusiastic about the Webb signing, calling it a coup for C.I.